Judge Deirdre Hill, Case 22TRCV01606 2023-03-13 Tentative Ruling

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The court considered the moving, opposition, and reply papers. On February 28, 2023, the court granted defendants’ ex parte application shortening time to hear motion to stay and advanced the hearing on the motion to compel arbitration to the same date.

The motion to stay is MOOT in light of the ruling on the motion to compel arbitration. The motion to compel arbitration is DENIED.

On December 27, 2022, plaintiff Salvador Correa filed a complaint against Ford Motor Company (“Ford” or “FMC”) and South Bay Ford Lincoln for violations of statutory obligations under the Song-Beverly Consumer Warranty Act as to a 2019 Ford F150 vehicle.

Under CCP § 1281, a “written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and revocable, save upon such grounds as exist for the revocation of any contract.”

Under CCP § 1281.2, “On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: . . . (c) A party to the arbitration agreement is also a party to a pending court action . . . with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact. . . . (d) . . . . If the court determines that a party to the arbitration is also a party to litigation in a pending court action . . . with a third party as set forth under subdivision (c) herein, the court (1) may refuse to enforce the arbitration agreement . . . ; (2) may order intervention or joinder as to all or only certain issues; (3) may order arbitration among the parties who have agreed to arbitration and stay the pending court action . . . pending the outcome of arbitration proceeding; or (4) may stay arbitration pending the outcome of the court action or special proceeding.”

Defendants South Bay Ford Lincoln and Ford Motor Company request an order compelling binding arbitration and to stay the proceedings. Defendants also filed a motion to stay the matter pursuant to CCP §1281.4 pending resolution of the motion to compel arbitration “because Plaintiff has refused to stipulation to the arbitration or the mandatory stay.”

The court notes that plaintiff filed a request for dismissal as to the dealership South Bay Ford Lincoln on March 6, 2023.

“As stated in Cione v. Foresters Equity Services, Inc. (1997) 58 Cal. App. 4th 625, 634 ‘The right to arbitration depends upon contract; a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract. There is no public policy favoring arbitration of disputes that the parties have not agreed to arbitrate.’” Lopez v. Charles Schwab & Co., Inc. (2004) 118 Cal. App. 4th 1224, 1229.

Defendants assert that on November 20, 2019, plaintiff leased the subject vehicle from South Bay Ford pursuant to a lease contract, which provides: “Agreement to Arbitrate: By signing below You agree that pursuant to the Arbitration provision on page 6 of this lease, You or we may resolve any dispute by neutral, binding arbitration and not by a court action. See the Arbitration provision for any additional information concerning the agreement to arbitrate.” California Motor Vehicle Lease Agreement, at page 1. It also states: “Either you or Lessor/Finance Company/Holder (‘us’ or ‘we’) (each, a ‘Party’) may choose at any time, including after a lawsuit is filed, to have any Claim related to this contract decided by arbitration. Neither party waives the right to arbitrate by filing suit in a court of law. Claims include but are not limited to the following: 1) Claims in contract, tort, regulatory or otherwise; 2) Claims regarding the interpretation, scope, or validity of this provision, or arbitrability of any issue except for class certification; 3) Claims between you or us, our employees, agents, successors, assigns, subsidiaries, or affiliates; 4) Claims arising out of or relating to your application for credit, this contract, or any resulting transaction or relationship, including that with the dealer, or any such relationship with third parties who do not sign this contract.” Id. at page 6.

Defendants assert that the lease contract and plaintiff’s lease of the subject vehicle (manufactured and warranted by Ford) from South Bay Ford forms the basis of plaintiff’s allegations against all defendants. Defendants assert that South Bay Ford has the legal right to demand that this dispute be resolved pursuant to binding arbitration as expressly set forth in the lease contract. Defendants further assert that “as a party to this action whose relationship with Plaintiff directly arises out of certain limited express warranties provided to Plaintiff via his lease of the Subject Vehicle (governed by the Lease Contract), Ford has the legal right to demand that this dispute be resolved pursuant to binding arbitration as expressly set forth in the Lease Contract.”

Although the court finds the existence of an agreement to arbitrate between plaintiff and defendant South Bay Ford, as stated above, South Bay Ford has been dismissed, and thus the court will not address the arbitration agreement as it relates to South Bay Ford.

As to whether Ford can enforce the arbitration agreement, it acknowledges that it is not a signatory to the lease agreement. Further, the court notes, it does not fall under a “party” to the lease agreement, which is defined as “Lessor/Finance Company/Holder.” Rather, Ford argues that although it is not a signatory “such an argument is precluded by the doctrine of equitable estoppel,” and cites to Felisilda v. FCA US LLC (2020) 53 Cal. App. 5^th 486, 497-99, because plaintiff’s claims “relate directly to the condition of the Subject Vehicle, just as the Felisildas’ claim against FCA relate[d] to the condition of his vehicle.” Defendants also cite to Mance v. Mercedes-Benz USA (N.D. Cal. 2012) 901 F. Supp. 2d 1147, 1155-56 (district court granted manufacturer’s motion to compel arbitration even though it was not a signatory because the plaintiff’s “claim for breach of warranty is premised on, and arises out of, the contract.”).

In opposition, plaintiff argues that equitable estoppel does not apply because manufacturer’s warranties, like Ford’s, are not part of a sales contract and thus are not inextricably intertwined with the lease agreement but rather “arise[] ‘independently of a contract of sale,’” citing to Greenman v. Yuba Power Products, Inc. (2013) 59 Cal. 2d 57, 60-61. Plaintiff contends that claims are “intimately founded” in a purchase agreement only when the complaint relies on the provisions in the agreement to support its claims. See DMS Services, LLC v. Superior Court (2012) 205 Cal. App. 4^th 1346, 1355 (as to argument that an agreement “give[s] rise” to claims, such an “argument confuses the concept of ‘claims founded in and intertwined with the agreement containing the arbitration clause’ with but-for causation.”). Here, plaintiff contends, plaintiff does not rely on the lease agreement to establish its causes of action against defendant Ford and is not seeking to enforce any term or condition of the lease agreement.

Further, plaintiff argues, it made no agreement with Ford to arbitrate any disputes, and thus Ford has no standing to invoke directly the arbitration provision in the lease agreement. As plaintiff asserts, the plain language of the arbitration provision defines the parties as “Lessee” and the dealership South Bay Ford as “Lessor” and that such language “specifically and intentionally limits who may elect arbitration to plaintiff, the dealership, the “Finance Company,” and the Holder against whom plaintiff has not brought claims. Plaintiff also argues that the term “third parties” does not create an additional category of parties who also have the power to elect arbitration. Rather, the term “third parties” instead refers to the types of disputes that the named parties could elect to arbitrate. Plaintiff contends that Ford does not fall into “employees, agents, successors or assigns, subsidiaries, or affiliates.” Plaintiff also argues that the arbitration provision does not cover warranty disputes.

Moreover, plaintiff argues, Ford is not a third-party beneficiary. As plaintiff’s payments are made to the dealership, Ford does not “in fact benefit from the [lease agreement].” Goonewardene v. ADP, LLC (2019) 6 Cal. 5^th 817, 830. Also, plaintiff contends, none of plaintiff’s obligations under the lease agreement affect Ford in any way.

In addition, plaintiff argues that the Felisilda case is factually and procedurally distinguishable from this case “where the non-signatory manufacturer attempted to compel arbitration on its own.” See Ngo v. BMW of N. Am. (9^th Cir. 2022) 23 F.4^th 942, 950. Plaintiff contends that in the only published cases which have cited Felisilda since its ruling, the courts have found that the reasoning in Felisilda did not apply where the signatory dealership was not part of the action, citing to federal cases in California. Further, plaintiff contends, in Felisilda, the plaintiff sued a dealership and the manufacturer jointly under a single cause of action, unlike here. Plaintiff also argues that California appellate authority requires Ford to show some unfairness they suffer for equitable estoppel to apply, and that Ford has shown none.

In reply, defendant Ford argues that although South Bay Ford was dismissed, it is still entitled to demand arbitration pursuant to the lease agreement. Defendant also reiterates its arguments that Felisilda is “binding and applicable” and that all of plaintiff’s claims are “entirely based on the Lease Agreement” as claims “arising out of or relating to . . . any resulting transaction or relationship . . . with third parties who do not sign [the lease agreement].”

The court finds that the arbitration provision in the lease agreement is unambiguous as to the parties, and defendant manufacturer Ford is not a party as defined by the agreement.

As to the doctrine of equitable estoppel, “a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” JSM Tuscany, LLC v. Superior Court (2011) 193 Cal. App. 4th 1222, 1237. The doctrine applies: (1) when the signatory must rely on the terms of the written agreement containing the arbitration clause in asserting its claims against the nonsignatory; or (2) when the signatory alleges “substantially interdependent and concerted misconduct” by the nonsignatory and a signatory and the alleged misconduct is “founded in or intimately connected with the obligations of the underlying agreement.” Goldman v. KPMG, LLP (2009) 173 Cal. App. 4th 209, 218-219. The first situation exists “‘when the signatory to a written agreement containing an arbitration clause “must rely on the terms of the written agreement in asserting [its] claims” against the nonsignatory.’” Id. at 218 (citation omitted).

As to the ruling in Felisilda, in the absence of any other state court binding precedent, the court is bound unless it determines that precedent to be distinguishable. See Auto Equity Sales, Inc. v. Superior Court of Santa Clara County (1962) 57 Cal. 2d 450, 455 (“[A]ll tribunals exercising inferior jurisdiction are required to follow decisions of courts exercising superior jurisdiction.”). The Felisilda court stated, “[i]n any case applying equitable estoppel to compel arbitration despite the lack of an agreement to arbitrate, a nonsignatory may compel arbitration only when the claims against the nonsignatory are founded in and inextricably bound up with the obligations imposed by the agreement containing the arbitration clause.” Felisilda, 53 Cal. App. 5^th at 498. In that case, the Felisildas brought a Song-Beverly cause of action against a local automobile dealership and the manufacturer, where the manufacturer was not a signatory to the agreement. The dealership moved to compel arbitration and the trial court granted the motion and ordered all the parties, including the manufacturer to arbitration. The plaintiffs dismissed the dealership and the arbitration proceeded between the plaintiffs and the manufacturer. The plaintiffs appealed and the appellate court affirmed the trial court order, finding that by signing the sales contract, “the Felisildas expressly agreed to arbitrate claims arising out of the condition of the vehicle—even against third party nonsignatories to the sales contract—[and] they are estopped from refusing to arbitrate their claim against [the manufacturer.” Id. at 497. The Felisilda court specifically noted that the Felisildas agreed to arbitrate “[a]ny claim or dispute, whether in contract, tort, statue or otherwise . . . between you and us or our employees, agents, successors or assigns, which arises out of or relates to . . . [the] condition of this vehicle.” Id. at 490. The court determined that the “Felisildas’ claim against FCA directly relates to the condition of the vehicle that they allege to have violated warranties they received as a consequence of the sales contract.” Id. at 497.

The court finds that Felisilda is distinguishable. Plaintiff alleges that plaintiff entered into a warranty contract (referring to 2019 Model Year Ford Warranty Guide) with defendant FMC regarding a 2019 Ford F150 vehicle, which was manufactured and or distributed by defendant FMC. Complaint, ¶9. The warranty contract contained various warranties. Id., ¶10. These causes of action arise out of the warranty obligations of FMC in connection with a motor vehicle for which FMC issued a written warranty. Id., ¶13. Plaintiff was harmed by purchasing a vehicle that plaintiff would not have leased and/or purchased had plaintiff known the true facts about the Transmission Defect. Id., ¶68. There is no allegation as to the lease agreement with respect to the claims against Ford. Further, as opposed to the arbitration language in Felisilda, there is no mention of claims or disputes arising out of or relating to the “condition of this vehicle” in the herein arbitration provision. The court thus finds that Ford has not shown that equitable estoppel applies. The Song-Beverly Act claims against manufacturer Ford are not inextricably intertwined with the lease agreement as they are not dependent on the existence of a lease agreement or any term contained therein. See Goldman v. KPMG, supra, at 217-18. Plaintiff alleges that the source of the warranties is the Ford Warranty Guide. Of note, the same claims could be asserted by a cash buyer without a lease agreement.

Further, the language in the arbitration provision as to “4) Claims arising out of or relating to . . . any resulting transaction or relationship, . . . or any such relationship with third parties who do not sign this contract”, upon which defendant relies, does not give authority to a third party to enforce the arbitration agreement; rather, it specifically refers to a category of “claim” that either plaintiff “or Lessor/Finance Company/Holder” may choose to arbitrate.

The court also notes that the federal cases, including Ngo (under California law, express and implied warranties from a non-signatory manufacturer are not part of the purchase agreement and instead arise independently of the sales contract) and Kramer, are persuasive authority albeit not controlling. In Kramer v. Toyota Motor Corp. (9^th Cir. 2013) 705 F.3d 1122, 1132, “In order for Toyota’s equitable estoppel argument to succeed, Plaintiffs’ claims themselves must intimately rely on the existence of the Purchase Agreements, not merely reference them. Toyota is correct that Plaintiffs’ claims presume a transaction involving a purchase of a Class Vehicle. The claims do not, however, rely upon the existence of a Purchase Agreement. For illustration, a consumer who purchased a vehicle with cash instead of credit would still state a claim for such relief could be granted, absent a Purchase Agreement.”

As to whether Ford is a third-party beneficiary, Ford does not explicitly assert. In any event, the court finds that Ford is not a third-party beneficiary. “A third-party beneficiary may enforce a contract made for its benefit. CCP §1559. However, ‘[a] putative third party’s rights under a contract are predicted upon the contracting parties’ intent to benefit’ it. Ascertaining this intent is a question of ordinary contract interpretation.” Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524. Ford does not show that it benefitted from the lease agreement. See Goonewardene, supra, at 830.

The motion to stay pending hearing on motion to compel arbitration is MOOT in light of the ruling on the motion to compel arbitration and because the court shortened time to hear the motion to stay and advanced the hearing on the motion to compel arbitration.